£1m sales. CVA and restructure, Non executive director - A long one this but technically exciting!
Is it equitable that one creditor can knock a company over when 30 other creditors want it to succeed? No, we did not think so either.
This family owned design and print company was performing badly after two bad debts and after losing a big customer. The MD's forecasts showed a situation where it would run out of cash and approached us via this site.
He needed advice on directors fiduciary duties as he felt the company was insolvent but strongly viable. We assessed the company and agreed. As part of our due diligence we always ask about impending legal actions or pre-existing legal actions (see guide here) like winding up, statutory demands, summonses etc.
The MD told us he knew one paper supplier was very angry and was threatening all sorts of things. Also the Inland Revenue (as it was then called) was sending strong threatening letters. Regardless we were appointed to build a recovery strategy.
• CVA to bind in £200k of debts to suppliers and Crown
• Restructure staff, cut costs by 23%
• Build new marketing plan to move away from small number of high volume clients to many more smaller clients (concentration issues)
• Talk to bank and keep them on board.
So we were appointed on a Friday night in July 2005, four days later all hell broke loose. Now, normally creditors are cooperative with our creditor liaison team and continue to supply products etc on pro forma once we have written to them explaining how the CVA works and that their debt is frozen.
This includes PAYE and VAT, however in this case ONE paper supplier decided that they would NOT await the CVA and they took very aggressive action.
Despite a caveat being lodged at the court the creditor was able to lodge an immediate winding up petition and make an application for a provisional liquidator under s135 Insolvency Act 1986. This is a little known rule that sends in an insolvency practitioner to take control of the company immediately.
Usually it is used to stop directors stealing assets or dissipating them. In this case the director had taken all proper steps to restructure, got professional help and we had written to the creditors telling them of our plans. The court was effectively hoodwinked into believing the directors were crooks, this was patently not true.
Our client phoned up the following Tuesday saying three people were in his building with a court order saying he had to hand over control to them and the court!
Using our knowledge of case law we knew we could stop this action and we asked two Sheriffs (Scottish Judges) privately what they thought of our defence strategy, they agreed with it.
We brought in a barrister and he went straight to court and sought an order to remove the liquidator and after several days and thousands of pounds of costs we succeeded in removing the liquidator and the winding up petition. This was after producing a 60 page CVA document in 3 days!
We must praise Royal Bank of Scotland here. It continued to support the company despite the liquidators appointment and the winding up petition during a time of huge risk and noise. The bank still provides a range of banking facilities to our client today. Clearly the bank could have easily appointed a receiver but chose to work with KSA and the clients board.
Then we had time to call a creditors meeting.
The petitioning creditor sent a local insolvency practitioner to make all sorts of noise, but equity ruled in the end. The CVA was approved despite him voting against it.
Since then the company has made profits well in excess of forecasts. And so the one creditor did not get their way and now the company buys its paper elsewhere. Its a successful small print/design company and this was despite the liquidator taking over £15,000 out of the company before the CVA.
Keith Steven sits on the board of this company and continues to guide the MD through further restructuring.
FACING WINDING UP PETITION? WE CAN HELP BUT YOU NEED TO TALK TO US TODAY.
CALL 0800 9700 539 AND ASK FOR IAIN CAMPBELL, OR KEITH STEVEN.